When Times Get Tough

Negotiations for Salary Cuts

BA is locked in negotiations with unions regarding changes in working conditions, a two year pay freeze and voluntary redundancies. Some pilots have agreed to a salary reduction in exchange for BA shares at a future date. Across the business travel community, there have been a number of TMC’s and others who have negotiated important concessions with staff, typically either a reduction in salary, working hours or extended leave as a means to limit the impact of the recession and fall in booking volumes.

It is vital to appreciate that changes in working conditions which result in a reduction in salary and benefits for employees should be carefully discussed and negotiated and if agreement is reached, then this should be set out in writing and signed by each employee. Since the Truck Act in 1896, it has been illegal for an employer to make any deduction from wages unless the worker agrees in writing, and it was fair and reasonable for the deduction to be made. The Truck Act was replaced by the Wages Act, and in turn this legislation is now under the Employment Rights Act 1998. Employees are entitled to be paid the salary set out in their contracts, and any variation to this has to be by agreement recorded in writing.

This recession is different to the last, as many employees have collectively agreed to downward adjustments to their salary and conditions as a means to avoid compulsory redundancies. Usually the negotiations are carried on in the context of redundancy consultation, without any guarantee from the employer that later redundancies might not happen. It is important to have the agreement about salary/benefit reduction clearly set out in writing. For example, employees might reluctantly agree to a short period of reduction in their usual salary, but would not want this to be an indefinite arrangement and for the old salary to be reinstated, possibly with repayment of back-salary when the company becomes more successful. Employers, on the other hand might want reductions to be permanent to save their bottom line and to satisfy their bank and shareholders about their continuing ability to trade. Equally, it is important to recognise that employees cannot be forced into taking salary reductions. Some may agree, whilst others may want to carry on at the old salary. In these circumstances it may not be possible to avoid compulsory redundancy.

Pipeline Problems

Many complex issues arise when a travel agent or a travel management company becomes insolvent. Under English laws of agency, an airline or hotel might appoint a TMC as its agent to market and promote sales of their travel service, to generate bookings, and to receive customer monies for payment up the line to the principal who is to provide the service. The status of agency in business travel has become increasingly blurred due to the abolition of commissions in the airline sector, and TMC’s charging booking fees to customers where in some areas, the agent is the agent of the client making the booking. However, all TMC’s will have signed up to the IATA Passenger Sales Agency Agreement in connection with their status as agent for the airline. There are also duties owed to clients in connection with the management of bookings.

Complicated issues arise when the TMC or travel agent becomes insolvent, holding money due to airlines, hotels and other principals. If there are confirmed bookings, then the airline or hotel is obliged to perform, even though it may not get paid. This is because the agent has accepted money on the principal’s behalf with its knowledge and authority. IATA is often able to use trust law to obtain monies paid to the insolvent agent for IATA ticket purposes, and extract this out of the pot of money available to the Administrator. In view of the trading difficulties in the current environment, IATA have also been evaluating the level of bonding required from TMC’s as a condition of trading.

Airlines Reduction of Distribution Costs

We have lived through the world of zero commission, and now United Airlines is seeking to pass on merchant charges from credit card companies as a means of reducing the costs of distribution through TMC’s to corporate buyers. Where United Airlines have started, others are bound to follow and one can hardly blame airlines who are in the worst trading environment for many years and trying to protect their own interests. For TMC’s they will need to review their own relationships with customers and the level of service charges applied to ensure their business model remains unaffected.